Falkland Oil and Gas (FOGL) shrugged off the renewed political threats from
Argentina as it eyed potentially transformative oil discoveries this year.

The company on Friday reported an increased annual loss for 2011 of $6.64m, compared with $3.74m in 2010, but said it had more than enough cash to fund its exploratory drilling programme off the Falkland Islands this year.

It expects to begin drilling at its Loligo prospect in June, after Borders & Southern finishes using the Leiv Eiriksson rig for drilling its two wells.

"The Loligo well, with prospective resources of 4.7bn barrels, will be one of the highest impact exploration wells to be drilled by an independent E&P company this year," Richard Liddell, Chairman of FOGL, said. "Either of the likely second well targets have a resource potential of over 1bn barrels. Any degree of success on these wells will be a transforming event for FOGL."

Tim Bushell, chief executive of FOGL, said he thought it "unlikely" that all four wells drilled by his company and by Borders & Southern would turn out to be "bone dry". He insisted it was not a "make or break" year, as FOGL expected to have a "reasonable cash position" left at the end of the drilling programme.

Mr Bushell said that he remained unfazed by the recent escalation in Argentine threats against the British oil companies, or its sending of legal declarations to the financial institutions who advise them.

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“We see the political risk as being pretty minimal and we are quite comfortable with how our operations are running. That’s not affected at all by the political noise next door," he said.

He said that FOGL had not received a letter from the Argentine Embassy recently but that it had been sent the so-called "letters of discomfort" previously and had never responded.

Companies who had partnered with FOGL or offered service contracts had also been sent them in the past. "It's fairly innocuous - it's just designed to be slightly disruptive," he said. "So far, we are not aware of any service provider or contractor being scared off from working in the Falklands."

"This is something they resurrected to coincide with the anniversary of the conflict," he said. He said that FOGL's brokers, Oriel and Jefferies, had reassured the company their relationship with it would be unaffected by the letters they had received from Argentina.

Mr Bushell also said he believed - but could not confirm - that some of FOGL's institutional investors may have been sent letters, too.

On Wednesday Argentina claimed a bizarre victory in its campaign to stop British companies exploring off the Falkland Islands, issuing a press release to hail a response from BP saying it had no plans to explore in the area - even though BP insisted it had never planned to enter the region anyway.

Mr Bushell said he thought this was a "clever political coup" by Argentina but suggested that BP's decision to respond may have been a strategic one because of its stake in Pan American Energy in the country. "They have got interests and assets in Argentina now and so it didn’t surprise me they did it," he said.

BP said on Wednesday that its letter has been a "simple answer to a simple question" and declined to comment further.